1. Field of the Invention
The present invention relates to the financial vehicle known as an individual annuity contract. More particularly, the present invention relates to a system for and method of administering payouts under an individual annuity contract.
2. Description of the Prior Art
When an individual retires and no longer collects a salary, he or she needs a way to be able to maintain the same quality of living as he or she enjoyed prior to retirement. Through the purchase of annuity contracts, individuals are provided with an opportunity to meet their retirement needs. As those of ordinary skill in the art know, an annuity is an insurance contract issued by an insurance company where the insurance company makes future payments to the contract owner based on the value at retirement of amounts paid in to the annuity. The contract owner is the person who owns the annuity, while an annuitant is the person on whose life the annuity payments are based. Depending on the payout option chosen, this stream of payments can be for life, for life with a period certain, etc. There are many payout options available with annuities in today's marketplace, as those of ordinary skill in the art will appreciate.
There are two types of individual annuities, fixed and variable. With a fixed annuity, interest will accrue on monies paid in by the contract owner at a rate set by the insurance company during the accumulation phase. The interest earned is guaranteed in the contract for a certain period of time. Taxes are deferred on the accumulated interest and annuity payout options are available. A variable annuity provides benefits that vary directly based on the investment experience of the investment option chosen, such as a particular stock fund. With a variable annuity, the contract owner can make deposits into a variety of mutual fund subaccounts offered through the annuity, defer the taxes on income and gains from these funds, and convert the funds to an income stream for the rest of the contract owner's lifetime. There are fluctuations in the accumulation value of a variable annuity as the investment experience of the investments is passed directly to the contract owner. Because of the many different investment options available, variable annuities are the more popular type of annuity in today's marketplace.
An individual annuity contract has two phases. The first phase is the accumulation phase of the contract. The second phase is the payout phase of the contract. During the payout phase of the contract, the contract owner has the choice of a number of different payout options. The various payout options protect the contract owner from the adverse consequences of living too long and outliving his or her money.
As the individual annuity has evolved and as individual annuities have become more popular in the marketplace, there have been many innovations in this area. For example, various types of death benefits, living benefits, guaranteed minimum income benefits, bonus investment credits for the contract owners at issue, disability benefits, payout options, etc., have been developed. In the current individual annuity contract marketplace, there are many different individual annuity contracts with many different features, and it is expected that there will continue to be many innovations in the individual annuity field and many more additional product features in the future.
In the payout phase, life annuities pay certain amounts of money as long as the insured annuitant survives. For prior art life annuities, after the payout commences, the annuity principal is not available for withdrawal and is not available upon the annuitant's death. To pay out the principal of a life annuity upon death or to make it available for withdrawal would affect the calculated redistribution of these amounts back to surviving annuitants, and would reduce the amount of the payment that an annuitant would receive from the beginning. Thus, the life annuity payout options offered with prior art individual annuity contracts do not allow the annuitant to withdraw principal after payout has commenced.
Liquidity characteristics of different payout options of individual annuities are a feature that is closely examined by prospective contract owners. Typically, people are afraid to tie up their money should an emergency arise, and they desire the ability to access the principal if needed. There are many reasons that an annuity contract owner might need access to the principal, such as serious illness, financial reverses, etc. Due to this lack of liquidity, many owners of annuity contracts never choose a life annuity payout option, as the principal cannot be accessed after payout begins.
Although there are many different types of prior art annuity payout options available in the marketplace with respect to life annuities, there are none that offer the annuitant the option to withdraw principal during the payout phase. The result is that many potential annuity owners avoid life annuity payout options, creating a large untapped market potential.
In view of the foregoing, it is clear that there is a need in the marketplace for an annuity payout option under which the contract owner can withdraw principal from the annuity during the payout phase.